Business tips

What every business owner should know about credit card processing fees.

By Jereme Sanborn on
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If your business accepts credit cards, you can’t escape the reality of processing fees. Knowing up front what you can expect to pay for each transaction helps you budget and compensate for fees and continue offering diverse payment options without impacting your bottom line.

Mandatory fees.

Fees set by card issuers and banks make up part of the total cost of processing credit card payments. Interchange fees are charged as a fixed percentage of each transaction with an additional flat rate, both of which are based on:

  • Card brand.
  • Card type.
  • Payment type.
  • Merchant risk level.

Card networks set fees and split them with issuing banks. You’re also charged an assessment fee, which is a percentage of your total monthly sales for each card type paid directly to the card brands. Unfortunately, neither of these fees can be negotiated or adjusted.

Additional fees.

You do have some wiggle room on the fees your payment processor charges on top of interchange and assessment fees. These fees may be calculated using:

  • A tiered structure, which means you pay more for high-risk transactions.
  • Interchange plus, where your processor passes the interchange fee on to you and adds a flat per-transaction rate.

Mobile payment processors tend to use the flat-rate model, charging one rate for card-present transactions and another for those when a physical card isn’t used.

These fees will vary depending on your credit card processor. Be sure to do research on different merchant services providers and compare fee structures.

Can you offset the cost of fees?

For traditional card payments, try to minimize card-not-present transactions and process as many swiped, dipped, and tapped transactions as you can. If you run a service-based business, consider adding convenience fees to cover the cost of payment processing. It may also be acceptable to add a service charge to card transactions, although you need to comply with rules and regulations set by the card companies and your state. Many businesses simply have a minimum for credit card transactions to ensure fees don’t swallow up the majority of profits from smaller purchases.

Low fees and strategic compensation measures keep the costs associated with credit card readers from eating into your bottom line. Be ready to compare processors and fee structures and negotiate processing rates to get the best price on the payment options your customers use most.